Palo Alto Weekly

News - April 22, 2011

City, Stanford reach financial agreement

Palo Alto, hospital concur on largest construction project in city's history

by Gennady Sheyner

Palo Alto and the Stanford University Medical Center reached a breakthrough Wednesday on a financial agreement that could pave the way for Stanford's massive expansion of its hospital facilities — the largest construction project in the city's history.

After weeks of intense negotiations, city and Stanford officials have tentatively agreed on a deal that effectively resolves the thorniest component of the parties' "development agreement" — a document that would grant Stanford the right to exceed local zoning regulations in exchange for a set of "community benefits." The agreement is one of two major documents, along with the Final Environmental Impact Report, that the city must approve before Stanford can proceed with the hospital project.

Though the two sides had reached accord earlier this year on most aspects of the document, they remained split over "cost neutrality." Palo Alto has consistently demanded that Stanford include in the development agreement a guarantee that the hospital expansion would not drive up the city's operating costs. Stanford had offered an upfront payment of $1.7 million — an operating deficit that was projected by the city's economic consultant. The city considered this offer insufficient.

But on Wednesday, Stanford submitted a new offer that includes an upfront payment along with a guarantee that the city will receive at least $8.1 million in construction-use-tax revenue by the year 2025. Stanford will do that by requiring its major contractors to obtain onsite-use tax licenses that would direct construction-use taxes to the city.

Michael Peterson, Stanford's vice president for special projects, outlined the offer in a Wednesday memo to City Manager James Keene, who shared Wednesday night at a meeting of the City Council's Policy and Services Committee. The new offer addresses the city's major concerns about the project's impacts on the city's bottom line, he said.

The committee voted 2-1, with Councilwoman Karen Holman dissenting and Councilman Larry Klein abstaining, to recommend approval, in concept, of the latest draft of the development agreement. Committee Chair Gail Price and Councilman Pat Burt both said they support the proposed document.

"I'm glad to see that we'd been able to have a proposal come before us that appears to really for the most part address our concerns and I think that Stanford is to be commended for the goodwill they have shown," Burt said.

The full council will still have to approve the proposed development agreement.

In addition to the "cost neutrality" assurance, Stanford has offered a package of "benefits" that includes Caltrain Go Passes for all hospital employees ($90.9 million), four new Marguerite shuttles ($25 million), a permanent transportation demand management coordinator ($5.1 million over 51 years) and a contribution to AC Transit, along with a lease of parking spaces at Ardenwood Park and Ride ($5 million).

Stanford has also agreed to make payments to the city for community health programs ($4 million), patient benefits for low-income residents ($3 million), affordable housing programs ($23 million) and climate-change efforts ($12 million). The hospitals estimate the total value package to equal about $173 million.

City officials estimate the benefit package at about $43.6 million and claim that the Go Passes actually constitute a "mitigation" that Stanford is required to provide to get environmental clearance for the hospital project, which will bring 1.3 million square feet of new development and 2,242 new employees to the city.

Holman argued that Stanford should be asked to provide more benefits, including extending of the city's lease of El Camino Park, giving the city a right-of-way bike path near Gunn High School and provision of an upstream retention basin to protect the city and its neighbors against flooding from the San Francisquito Creek.

The city had earlier considered many of these proposed benefits, including the upstream basin, but ultimately discarded them because they are not directly related to the hospital and its impacts.

Peterson's letter also notes that Stanford's agreement on cost neutrality is contingent on the city not making more demands of the hospitals.

The hospital expansion includes a new Stanford Hospital & Clinics Building, an expanded Lucile Packard Children's Hospital and renovations to the Stanford University School of Medicine.

Posted by benefits to the city, a resident of Adobe-Meadow
on Apr 21, 2011 at 7:25 am

Is the vast majority of the Stanford offer just buying Caltrain passes for their employees? Curious that the article does not give a dollar value for the Caltrain passes, though everything else together adds up to less than half the claimed total value.

"Holman argued that Stanford should be asked to provide more benefits, including extending of the city's lease of El Camino Park, giving the city a right-of-way bike path near Gunn High School and provision of an upstream retention basin to protect the city and its neighbors against flooding from the San Francisquito Creek."

Nice to see that Holman has taken over the position held by Kishimoto/Drekmeier/Morton.
Holman believes the old myth that Stanford is a cash cow, to be milked whenever Palo Alto needs money. Yes, KAren, let's add a whole series of unrelated requests and demand that Stanford pay for it.
Let's forget that that the Stanford hospital has a deadline to become earthquake compliant. Let's also forget that in the event of a major disaster, Stanford hospital will be at our doorstep to take care of our medical needs. Some people in Palo Alto do not consider that a benefit!!!
I guess for some people $173 million is not enough!!!!

Posted by milk that cow, a resident of Crescent Park
on Apr 21, 2011 at 9:47 am

To Palo Alto, Stanford is just a cash cow. Stanford puts money in escrow in good faith and Palo Alto just takes it and uses it at will. There is no audit that it is spent under the terms of the original GUP and should be returned to Stanford is not used for those purposes.

Posted by janet, a resident of Menlo Park
on Apr 21, 2011 at 10:52 am

Two of the hardest hit areas will be in the County of San Mateo in unincorporated Menlo Park. However, the County Public Works has done nothing whatsoever to get any mitigation measures for that area.

Posted by Developers rule, a resident of Stanford
on Apr 21, 2011 at 11:21 am

Development advocate Svatoid wont give up his grudges, he keeps them fresh and drags them out as needed.
I am thankful that there are council people who do the work and stand up for what they believe is in the city's interest, not blindly approving development.
Actually Stanford IS a cash cow. They are so rich, their assets will soon number in trillions, not billions. Have you seen recent changes on campus? Mind boggling.

"Development advocate Svatoid wont give up his grudges, he keeps them fresh and drags them out as needed."
If you call supporting Stanford and wanting a modern 21st century hospital in our area as being an advocate of development, then i will proudly wear that tag.
As for grudges, I am just pointing out that Holman is following in the footsteps of her anti-Stanford predecessors. If you call expecting some accomplishments from you elected officials a "grudge" then I will proudly wear that tag also.

"I am thankful that there are council people who do the work and stand up for what they believe is in the city's interest, not blindly approving development."
Which council people "do the work"?
How long has this been dragging through the council and the endless PA process? Maybe the council os hoping this will be like the Alma Plaza development and never be resolved.
As I said, some people feel that $173+ million AND a world class hospital next door is not enough.

"Actually Stanford IS a cash cow. They are so rich, their assets will soon number in trillions, not billions. Have you seen recent changes on campus? Mind boggling."
You need to become aware of what the role of a world class university is and how changes need to be constantly made. And yes, Stanford may be a cash cow to some, but that does not mean it needs to fund all of PA's green pipe dreams and cover the terrible management of the cities finances

Posted by milk that cow, a resident of Crescent Park
on Apr 21, 2011 at 12:15 pm

"Actually Stanford IS a cash cow. They are so rich, their assets will soon number in trillions, not billions. Have you seen recent changes on campus? Mind boggling."

I see that you agree that you're fine with spending other peoples money. Hey, it's just sitting in escrow, right? Let's just spend it!

Posted by Howard, a resident of Crescent Park
on Apr 21, 2011 at 5:40 pm

The mindless cheerleaders for Stanford might think twice if they knew that the massive hospital expansion will require more water than is available, thus forcing water rationing on everyone else. This is explicitly stated in the environmental impact statement. The City Council thinks this is OK (anthing requiring citizens to sacrifice is good, according to them).

Posted by prettypicky!!, a resident of Midtown
on Apr 21, 2011 at 10:15 pm

I agree with the comment from "svatoid".
And Stanford has done a lot for the area, and a high quality medical intitution!!

Posted by gratitude, a resident of Old Palo Alto
on Apr 22, 2011 at 12:39 am

Stanford has an obligation to it's students and trustees. Palo Alto is the leech attached to a fat cow.

Someday Stanford will wake up and roll over on Palo Alto, and will require an Current Student Card or Paid Alumni Card to use it's facilities. Remember the dish and ALL the Stanford properties are THEIRS and we use them as their guest.

The Palo Alto Council needs to remember that when they negotiate.

We have these benifits because Stanford is GENEROUS to the community. Not because our narrow minded city council demands it.

Posted by svatoid, a resident of Charleston Gardens
on Apr 22, 2011 at 6:31 am

"The mindless cheerleaders for Stanford"
As we see, those in Palo Alto that hate Stanford and do not appreciate what they have done for Palo Alto like to label those that appreciate and support Stanford as "mindless". Now we know the mindset that Palo Alto has when it enters into negotiations with Stanford--it sees it self as mentally superior dealing with an addled opponent!!

Posted by Peter Carpenter, a resident of Atherton
on Apr 22, 2011 at 7:21 am

It is interesting to look back and ask why Palo Alto has any say on this particular project since the entire rest of the campus is located outside of Palo Alto. Well years ago Stanford decided to move its Medical School from San Francisco to its campus. The Medical School needed to have a hospital and Palo Alto wanted a hospital so they partnered to build the hospital portion of the Medical Center together.

Stanford agreed to allow Palo Alto to incorporate the land on which the then entire Medical Center stood (including the Medical School and the Clinics) into the City of Pal Alto. Soon thereafter Palo Alto decided to get out of the hospital business and sold its interest to the University - but forgot to return the land to its former unincorporated status.

Perhaps Stanford should use some of the hospital benefits funds to seek a court order unincorporating this land from the City of Palo Alto and then move on.

Posted by svatoid, a resident of Charleston Gardens
on Apr 22, 2011 at 8:00 am

Peter--thanks for the history lesson. Agree with your conclusion, however Palo Alto will never agree to unincorporate the land--it gives them a hold over Stanford and allows them to make outrageous financial demands in order to cover their financial incompetence.

Posted by Peter Carpenter, a resident of Atherton
on Apr 22, 2011 at 8:42 am

Given Palo Alto's divestiture of its ownership interest in the hospital the rationale for incorporating this land into the City disappeared - I think some good lawyers could force disincorporation.

At a minimum the threat might give Palo Alto second thoughts about the greedy way it treats the golden goose - without which Palo Alto would just be another Gilroy.

Posted by Concerned, a resident of Crescent Park
on Apr 22, 2011 at 12:16 pm

I was told that the agreement includes a clause to ration water for Palo Alto residents in order to guarantee Stanford the water they need for this development. Has anyone else heard about this?

Posted by neighbor, a resident of another community
on Apr 22, 2011 at 2:10 pm

Dear "Concerned" -- Your "concern" is bizarre and it is nonsense.

Posted by Kate, a resident of Duveneck/St. Francis
on Apr 24, 2011 at 10:42 am

Didn't Stanford want to keep the entire hospital and shopping center in Palo Alto so that it was covered by the Palo Alto Police Department, not the Santa Clara County Sheriffs who have jurisdiction over the rest of the university? Right now I've heard you can walk across a line in the present hospital into the Medical School - and go from city to county. Also Palo Alto gets sales tax revenue from the shopping center.

Posted by Peter Carpenter, a resident of Atherton
on Apr 24, 2011 at 1:07 pm

Kate asks:":Didn't Stanford want to keep the entire hospital and shopping center in Palo Alto so that it was covered by the Palo Alto Police Department, not the Santa Clara County Sheriffs who have jurisdiction over the rest of the university?"

No. Palo Alto insisted that the site of then new hospital (which was an integral part of the Edward D.Stone designed building that houses the hospital, clinic and medical school) be annexed to the City.

Posted by Demolish not rehabilitate, a resident of Stanford
on Apr 24, 2011 at 10:53 pm

That's the Edward Durell Stone medical school building that the project will demolish.